The Facebook IPO Fail

OK, Facebook’s much hyped IPO was a flop, shares are now selling for less than what they were originally offered for. This means that anyone who ran out and bought Facebook stock as soon as it was offered is feeling mighty stupid now, which most definitely does not include me. There are already claims of improprieties about the whole deal, which may or may not be true. For my purposes this is a lovely little example of how the American financial system is rotten to the core. (A major theme of my last post, I’m on a roll.)

The first thing, and the thing that I would have thought would be obvious, but what, exactly, does Facebook do to make wealth? Well, nothing. They have no products, farms, factories, mines, etc. Facebook doesn’t produce a damn thing, it is merely a vehicle for siphoning money out of millions of people’s pockets via advertising and its unseemly host of related gold mining schemes. Facebook is purely a middle man, and it’s not even an original middle man, it replaces smaller middle men at the very best. It’s what I call a purely parasitical industry, it creates nothing of its own and sucks money from other parts of the economy. Now this is not necessarily a bad thing in and of itself, it’s that it was touted as some great new stock, as if it was going to be some prime part of the new economy. An online social network? Really? As far as I can tell, I’m one of the few people who is pointing this out. There was a time in the USA when a prime stock was in a company that actually produced wealth: Auto companies, oil companies, and even on through computer companies, great stock was in company that had a great product. Now a stock seems to be mostly valued by how much it can go up in price. This isn’t value, it’s gambling.

It gets worse. Doesn’t anyone remember what stock used to be in the old days? In the 1960s and before? The stock market, as it was originally conceived, was a way for companies to attract investors so that it could expand its operations. And by ‘expand its operations,” I mean build things, hire people, and just generally be a productive part of the economy. This was how it worked, this was capitalism, and it was a wonderful thing. This isn’t how the stock market works anymore. For one thing, it can’t, because the wealth of the country is owned by a tiny handful of families. Capital can’t be raised by selling stock to the masses anymore, because for the most part the masses don’t have any money. And what was Facebook going to invest all the money it raised in? Nothing, the whole idea was for the stock to rise rapidly in value, and a tiny handful of people would have become fabulously rich. Again, this isn’t capitalism, it’s gambling.

Except of course in most gambling, the game isn’t rigged. There’s one more gambling example. Ever heard of day trading? That’s where people buy and sell stock over the very short term and try to make a profit. Think about this, how, exactly, does it benefit a company having someone own some of its stock for a few hours? It doesn’t that I can see, and this is a perversion of what the stock market is supposed to be. And who profits from this? The brokerage houses that handle the buying and selling of stock. In fact they make a profit no matter if the day traders win or lose. And the day traders are gamblers, make no mistake about it. So basically the people running the stock market turned it into a casino. This is madness. And this is the sort of mind set that came up with ever more complicated financial shenanigans that made the people at the top wild wealthy on paper, and destroyed the economy and gutted the poor and middle class in the process.

And this all happened slowly, over decades. Even as a teenager I remember when all of a sudden in the early 1970s Savings and Loans sprung up on every corner. And I couldn’t help but think, gee, these are some expensive buildings, who is paying for this? And it’s gotten worse since, and it’s clear who is paying for it. The only thing that I wonder about now is when the American people are going to wake up and realize that they’ve been had by both parties for decades.

I hope I’m here to see it.

(The above image is from Wikipedia and is reproduced under a GNU Free Documentation License. It’s a casino. And Wall Street. At least in casinos they don’t pretend its anything but gambling. The rise of legalized ambling is also part and parcel of the rot infecting America, topic for another post there for sure.)

Excellent post, Doug. Has anyone seen the detailed article about Facebook in Consumer Reports magazine this month, issued right before their IPO? Definitely worth a read, especially because it focuses on the privacy issues and resulting lawsuits worldwide and shines a critical light on FB business practices in general. And this is why I avoid FB like the plague.

I think over the long haul Facebook is going to be one of the biggest and most important companies of this century. I do not use FB, but to think that their direct access to one billion people is worthless, is a big mistake. They are just getting started. It is a scary prospect. Watch and see.
Jon